The hardware industry's value chain can be divided into five distinct stages, based on factors such as scale, influence, and technological advancement. Understanding these stages helps businesses position themselves strategically in a competitive market.
1. **First-rate Companies – Setting Industry Standards**
To become a leader in any industry, companies must establish their own standards. These standards often become the industry norm, and when recognized by the government, they evolve into official regulations. In the hardware sector, many key standards are still set by foreign entities. For example, Microsoft’s operating system dominates 95% of China’s market, creating a de facto monopoly. Similarly, Kodak once controlled over 50% of the Chinese film market before its partnership with Lucky strengthened its position. Another example is a Swedish company that holds 95% of the sterile soft packaging market in China, with major domestic dairy brands like Bright and Sanyuan relying on its aseptic filling technology. Fortunately, China has made progress in establishing its own standards, such as ending the $2 billion annual DVD royalty payments in 2007, which had previously limited profit margins for Guangdong manufacturers to just 27 cents per unit.
Luo Baihui, Secretary-General of the International Mould, Hardware and Plastics Industry Suppliers Association, emphasizes that in today’s globalized and tech-driven landscape, setting industry standards is crucial for national competitiveness. He stresses that the mission of individuals and companies should align with national interests, using resources effectively to protect domestic enterprises and promote innovation.
2. **Second-rate Companies – Building Brand and Culture**
In the early stages of market competition, companies can succeed by producing better quality products than their competitors. However, as technology advances and new processes become widespread, products tend to become more homogeneous. This shift pushes the market into the “brand era,†where brand strength becomes a key differentiator. Top 10 companies in the industry usually dominate this segment. Behind strong brands lies deep corporate culture, which enhances brand reputation and loyalty. Culture is the soul of a brand, shaping its identity and long-term success.
3. **Third-rate Companies – Delivering Customized Solutions**
These companies focus not just on products but on providing tailored solutions to meet specific customer needs. The real value lies in the service and support surrounding the product, rather than the product itself. As the saying goes: "Buying a product is not as good as buying a service; buying a service is not as good as buying a solution." In the hardware industry, marketing strategies need to evolve to offer comprehensive solutions that go beyond traditional product sales.
4. **Fourth-rate Companies – Product Differentiation**
Product differentiation is a key strategy for standing out in a competitive market. It involves making slight changes to products so that consumers perceive them as unique, leading to different preferences. According to industrial organization theory, product differentiation plays a major role in shaping market structures. Companies that successfully differentiate their products gain a competitive edge, creating barriers for new entrants and fostering consumer loyalty. This strategy allows firms to compete more effectively and maintain market share.
5. **Fifth-rate Companies – Competing on Homogeneity and Price**
This stage represents the decline of pure price-based competition, where high-quality products are no longer scarce. In this environment, companies often engage in aggressive pricing wars, leading to thin margins and poor long-term sustainability. Many businesses end up trapped in a cycle of homogeneity, unable to stand out or build lasting value. To break free, companies must strive for excellence, aiming to be the best in their field and continuously innovate to meet higher demands and standards.
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